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Optimization Modeling in Lingo

# Optimization Modeling in Lingo

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05/30/2013

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1
1What Is Optimization?
1.1 Introduction
Optimization, or constrained optimization, or mathematical programming, is a mathematical procedurefor determining optimal allocation of scarce resources. Optimization, and its most popular specialform, Linear Programming (LP), has found practical application in almost all facets of business, fromadvertising to production planning. Transportation and aggregate production planning problems are themost typical objects of LP analysis. The petroleum industry was an early intensive user of LP for solving fuel blending problems.It is important for the reader to appreciate at the outset that the “programming” in MathematicalProgramming is of a different flavor than the “programming” in Computer Programming. In theformer case, it means to plan and organize (as in “Get with the program!”). In the latter case, it meansto write instructions for performing calculations. Although aptitude in one suggests aptitude in theother, training in the one kind of programming has very little direct relevance to the other.For most optimization problems, one can think of there being
two important classes of objects.
The first of these is
limitedresources,
such as land, plant capacity, and sales force size. The second is
activities,
such as “produce low carbon steel,” “produce stainless steel,” and “produce high carbonsteel.”
Each activity consumes
or possibly
contributes
resources
. The problem is to determine the best combination of activity levels that does not use more resources thanare actually available. We can best gain the flavor of LP by using a simple example.
1.2 A Simple Product Mix Problem
The Enginola Television Company produces two types of TV sets, the “Astro” and the “Cosmo”.There are two production lines, one for each set. The Astro production line has a capacity of 60 sets per day, whereas the capacity for the Cosmo production line is only 50 sets per day. The labor requirements for the Astro set is 1 person-hour, whereas the Cosmo requires a full 2 person-hours of labor. Presently, there is a maximum of 120 man-hours of labor per day that can be assigned to production of the two types of sets. If the profit contributions are \$20 and \$30 for each Astro andCosmo set, respectively, what should be the daily production?

2
Chapter 1 What is Optimization?
A structured, but verbal, description of what we want to do is:Maximize Profit contributionsubject to Astro production less-than-or-equal-to Astro capacity,Cosmo production less-than-or-equal-to Cosmo capacity,Labor used less-than-or-equal-to labor availability.Until there is a significant improvement in artificial intelligence/expert system software, we willneed to be more precise if we wish to get some help in solving our problem. We can be more precise if we define:
A
= units of Astros to be produced per day,
= units of Cosmos to be produced per day.Further, we decide to measure:Profit contribution in dollars,Astro usage in units of Astros produced,Cosmo usage in units of Cosmos produced, andLabor in person-hours.Then, a precise statement of our problem is:Maximize 20
A
+ 30
(Dollars)subject to
A

60 (Astro capacity)
50 (Cosmo capacity)
A
+ 2
120 (Labor in person-hours)The first line, “Maximize 20
A
+30
”, is known as the
objective function
. The remaining three linesare known as
constraints.
Most optimization programs, sometimes called “solvers”, assume allvariables are constrained to be nonnegative, so stating the constraints
A
0 and
0 is unnecessary.Using the terminology of resources and activities, there are three resources: Astro capacity,Cosmo capacity, and labor capacity. The activities are Astro and Cosmo production. It is generally truethat, with each constraint in an optimization model, one can associate some resource. For each decisionvariable, there is frequently a corresponding physical activity.
1.2.1 Graphical Analysis
The Enginola problem is represented graphically in Figure 1.1. The feasible production combinationsare the points in the lower left enclosed by the five solid lines. We want to find the point in the feasibleregion that gives the highest profit.To gain some idea of where the maximum profit point lies, let’s consider some possibilities. The point
A
=
= 0 is feasible, but it does not help us out much with respect to profits. If we spoke withthe manager of the Cosmo line, the response might be: “The Cosmo is our more profitable product.Therefore, we should make as many of it as possible, namely 50, and be satisfied with the profitcontribution of 30
50 = \$1500.”

What is Optimization? Chapter 1
3
Figure 1.1 Feasible Region for Enginola
FeasibleProductionCombinations Astros0102030405060102030405060708090100110120Cosmo CapacityC = 50Labor Capacity A + 2 C =120 Astro CapacityA = 60Cosmos
You, the thoughtful reader, might observe there are many combinations of
A
and
, other than just
A
= 0 and
= 50, that achieve \$1500 of profit. Indeed, if you plot the line 20
A
+ 30
= 1500 and addit to the graph, then you get Figure 1.2. Any point on the dotted line segment achieves a profit of \$1500. Any line of constant profit such as that is called an iso-profit line (or iso-cost in the case of acost minimization problem).If we next talk with the manager of the Astro line, the response might be: “If you produce 50Cosmos, you still have enough labor to produce 20 Astros. This would give a profit of 30
50 + 20
20 = \$1900. That is certainly a respectable profit. Why don’t we call it a day and gohome?”
Figure 1.2 Enginola With "Profit = 1500"
Astros01020304050102030405060708090100110120Cosmos
20 A + 30 C = 1500